How the CRTC is endangering better broadband for Canadians

The decision adopted in July 2015 by the Canadian Radio and Telecommunications Commission (CRTC), which forces incumbent telecom and cable operators to share their fibre-to-the-home (FTTH) networks with alternative operators at regulated prices, has elicited a very hectic, polarized debate. This is not surprising. In this field, public debates always tend to ignore complexity, and hinge on very bold, partisan statements.

Moreover, this time the stakes are high (several billion dollars will be needed to bring FTTH to major Canadian cities, let alone remote areas); and evidence brought to support the decision appears weak. As a result, one of the incumbent telcos (Bell) filed a petition with the new Trudeau government, asking that the decision be overturned, citing likely negative effects in terms of investments to deploy fibre. Bell’s appeal has been supported by over 70 municipalities, competitors and technology companies. But it has also triggered a dramatic reaction by some stakeholders, including within the city councils of Ottawa and Toronto, who claim that, should the appeals find any sympathy in the new cabinet, Canadian citizens would become hostage to the incumbents’ pricing discretion. This, they fear, would mean a return to monopoly. They believe urgent counter-measures are required.

Is there any merit in these claims? As a matter of fact, there is little reason to expect such dramatic outcomes: as was shown during the CRTC hearings last year, in Canada, broadband prices and availability compare favourably to most industrialized countries; demand for FTTH appears to grow slowly, which will make high prices unlikely; and even more importantly, Canadian telcos compete with large cable networks with nearly ubiquitous presence in the Canadian territory.

Imposing access obligations on a network that is still being built is counter-intuitive and ineffective

Contrary to these claims, international evidence casts important doubts on the desirability of the approach adopted by the CRTC. As a European academic having witnessed two decades of access-based regulation, I can testify that access policy has had a negative impact on investment in new networks: this issue, after a long debate, is now settled in Brussels: no one questions it anymore. Even the European Commission has recognized that the EU regulatory framework was not apt to incent a “generalized roll-out of new networks in accordance with public-policy objectives.” What’s more, the commission also acknowledged that access policy can reduce alternative operators’ incentives to invest in their own facilities. This is deplorable, since there is wide consensus among economists and policy-makers that the only sustainable form of competition in the long run is infrastructure-based, not access-based competition.

Related

This is not just a European story. Evidence from global telecommunications regulation suggests that no country having imposed access obligations on fibre deployment has achieved significant investment levels to date; again, on the contrary, world FTTH leaders have adopted a fairly cautious, hands-off approach: the United States lifted regulatory obligations for high-speed broadband in 2003; in world-leading South Korea the government lifted regulatory obligations on all fibre networks deployed after 2004; in Japan, competition is facilities-based and yet end-users benefit from very low retail prices, despite the absence of unbundled fibre. In contrast, countries that rely on access policy, such as Germany, the U.K., Italy, France and Sweden, have failed to create suitable conditions for investment to occur, and fell into a situation in which hundreds of players survive in the market, but no one invests in fibre. Numbers are clear: in the U.S., per capita investment in telecommunications infrastructure has surpassed the corresponding EU figure by 50-60 per cent in the past two decades.

In a nutshell, legal rules do matter when it comes to investment incentives. Imposing access obligations on a network that is still being built is counter-intuitive and ineffective; doing it in a country that features widespread competition between telcos and cable broadband is preposterous. And even if companies will not completely stop investing in new networks as a result of the CRTC rule, investment decisions will be distorted, with many cities and rural areas (the ones most in need) likely to see substantial delays.

Against this background, in the name of what public policy goal is the CRTC regulating fibre? International best practice requires regulators to substantiate their decisions on the basis of available evidence. But here, key questions await an answer. Is the CRTC expecting alternative operators to deploy their own infrastructure someday, or will they have access at regulated prices forever? The more digital markets drive innovation, growth and the transformation of the economy, the more these questions have to be taken seriously, and any heavy-handed regulatory intervention on a nascent market should be carefully considered. The municipalities whose leaders have supported Bell’s appeal seem to be aware that their future prosperity and development significantly depend on the deployment of ultra-fast broadband networks. Past experience suggests that access regulation can substantially delay investment in these networks.

Andrea Renda, Ph.D. is a senior research fellow at the Centre for European Policy Studies.

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